Proposed South African minimum wage ‘will not undermine economy’

A report by a government-appointed panel of experts (128-page / 2.65 MB PDF), has proposed setting the minimum wage at ZAR 3,500 ($248) per month, or an hourly rate of ZAR 20 ($1.41).

The recommendation, released on 21 November, is now under review by organisations and agencies across the country, including parliament, the cabinet and South Africa’s National Economic Development and Labour Council.

However, the panel’s proposal has already been welcomed by the chair of parliament’s Portfolio Committee on Labour, Lumka Yengeni. Yengeni said the proposed figure was subject to further consultation, but she added: “As an entry-level, this amount will save the most vulnerable workers from further exploitation.”

South Africa’s deputy president Cyril Ramaphosa, who appointed the expert panel, has said the government “would ensure that the national minimum wage does not undermine efforts to grow the economy and create jobs on a far greater scale”.

According to a report published by the University of the Witwatersrand in Johannesburg and the National Minimum Wage Research Initiative (66-page / 2.45 MB PDF), the minimum wage policy “will directly and indirectly stimulate demand for and output of economic sectors, especially in manufacturing”.

The report said: “For more than 85% of  economic sectors, the positive employment impacts of sector  output increases outweigh the direct relatively small negative employment impact of marginally higher sectoral average real wage rates.”

However, the first deputy managing director of the International Monetary Fund, David Lipton, said of South Africa earlier this year: “Some well-intended policies have unintended consequences: take the proposed national minimum wage. It could help reduce inequality, but if the wage is set too high or with no sub-minimum for young people and small enterprises, it risks creating more unemployment.”

Separately, ratings agency Fitch has said introducing a national minimum wage might be a populist move – but also a measure that could hit investment.

Fitch’s head of sovereign ratings for Europe, Middle East and Africa, Jan Friedrich, reportedly said: "The authorities may see a need to react to the discontent about insufficient improvement to living standards by pushing costly social programmes.”

“Authorities may feel, if they have a poor showing, that there is a need for quick fixes like the introduction of a high minimum wage that would appear to help the poor but may also discourage investment," Friedrich said.